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First CMA competition decision on excessive pricing in the pharmaceutical sector

As a body of law, competition law is unusual in the extent to which it is susceptible to the influence of wider policy considerations. The enforcement priorities of the public regulators change over time, and, as a result, new forms of conduct fall under the antitrust spotlight.

No doubt at least in part as a consequence of stretched health budgets, the question of excessive pricing of pharmaceuticals is now firmly on the competition authorities' agenda in Europe (as well as the US).

In December 2016, the Competition and Markets Authority ('CMA') concluded its investigation into the supply of phenytoin sodium capsules by Pfizer and Flynn with its highest fine to date (Â£90 million), and ordered the companies to reduce their prices within 4 months.

The case concerned a 2,600% increase in the price of phenytoin sodium capsules, an anti-epilepsy treatment. Excessive pricing is one of the more controversial types of abuse of dominance - the lack of a bright line test between competitive and anti-competitive pricing has meant that infringement decisions in relation to this form of abuse have been rarely pursued. Indeed, this is the first UK competition authority decision based on excessive pricing by a pharmaceutical company since a 2001 decision involving differential pricing in the hospital and community sectors.

Although the full text of the CMA's decision is yet to be published, it is possible to make the following observations:

This decision is very unlikely provides any new basis for interventions in relation to drugs which are subject to the PPRS. Phenytoin sodium is not new - its use for epilepsy has been known for many years, although the drug was only marketed as a generic following the conclusion of a UK supply deal between Pfizer and Flynn. Its pricing was therefore well-established before the price increases which were the subject of the investigation. This is a very different legal and commercial context to that applicable for new or branded drugs.

The trend towards ultra-narrow market definition in the pharma sector appears to be continuing. Phenytoin sodium is now used only as a third line treatment for certain specific types of epilepsies, sales of which have been in decline for a number of years. It is likely that the CMA's dominance finding relies on the clinical recommendation that stabilised patients should remain on one specific brand of product.

No anti-competitive collusion has been alleged. Here the case is based only on abuse of dominance, with each company consecutively imposing excessive prices. This of course raises Flynn's cost base, so it will be interesting to see how the CMA has dealt with Flynn's conduct, relative to Pfizer's.

The price reduction remedy will not be straightforward - the companies will have to calculate what reduction is sufficient to bring the infringement to an end. Indeed, following the infringement decision, Flynn applied to court to have the remedy suspended on the basis that the remedy was "vague and unworkable", a claim which the Competition Appeal Tribunal rejected. It is likely that Flynn will establish revised prices by reference to the 6% return on sales which the CMA has said would not be unreasonable.

The CMA's policy on pricing of legacy pharmaceuticals looks set to continue. Shortly after the Pfizer/Flynn decision, it issued a Statement of Objections to Actavis UK as part of an investigation into excessive pricing of hydrocortisone tablets - prices for some formulations are said to have increased by 12,000%. Pfizer and Flynn have both announced their intention to appeal the recent decision and similar investigations have taken place in Italy. The legal position in relation to pricing of pharma products in the EU looks set to be thoroughly tested in the coming years.

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